Romney Tax Plan

So the problem with Romney's tax plan is that he really hasn't specified enough to call it a plan. He said he'd cut some taxes for the wealthy and he'd keep things revenue neutral, but he didn't say what spending reductions there would be (because no one wants to talk about that in an election, particularly when your math doesn't work). So the Tax Policy Center issued a report, trying to make some assumptions. They concluded that Romeny will have to significantly raise taxes on the middle class to make up the difference. I didn't give it much notice as it's obviously based on assumptions. But here are a few very good points about the TPC report.

Krugman on the TPC report about the effects of Romney's tax plans, Dooh Nibor. "The question one might ask is, did TPC – which is actually painstakingly and painfully nonpartisan – make questionable assumptions to get its results, so that some other set of assumptions might portray Romneynomics in a more favorable light? And the answer is no: TPC actually bent over backwards to literally give Romney every possible benefit of the doubt.

Here’s what they did. They took Romney at his word that he plans to offset his cuts in income tax rates by broadening the base, that is, limiting exemptions and other loopholes. They also assumed, however, that Romney would not be willing to tax dividends and capital gains as ordinary income, since he has made it clear that he opposes any rise in taxes on investment income. As they point out, this leaves a relatively small pool of loopholes to close – big enough that the Romney tax cuts could, in principle, be paid for by base broadening, but not with a lot of room to spare.

So which loopholes are closed? TPC made the most Romney-friendly assumption they could – namely, that base broadening is concentrated on top incomes as much as possible. First you eliminate all deductions that benefit those with more than $1 million in income; then all that benefit those with between $500,000 and $1 million; and so on.

The key point is then that even if you do this, the tax cuts Romney gives high-income Americans are bigger than the loopholes he could conceivably close"

Brad DeLong goes into a little more detail: "Romney says he wants to make up the $360 billion/year of reduced revenue by closing "loopholes"--but he has not said which "loopholes": he has only said that the mortgage interest deduction, the savings-program 401(k) deduction, and like provisions are not "loopholes".

By Brown et al.'s count--which looks right to me--Romney has left only $550 billion/year of "loopholes" on the table: . Of those, some $165 billion/year flow to those reporting incomes of more than $200,000/year. That means that even if--even if: it ain't going to happen because he ain't going to push Congress to do it--Romney eliminates all of his on-the-table "loopholes" as they apply to America's upper class, he will have in the long run redistributed some $85 billion/year to America's upper class--and raised taxes in the long run by $85 billion/year on the middle and working classes if he is going to keep the long-run budget deficit from growing."

He points out that Romney's people (Kevin Hassett) say his tax cuts for the wealthy will boost the economy but DeLong does the math and even if it does (which it won't, it didn't under Bush) it's still not enough to cover the difference. He also takes Hassett to task for his previous Dow 3600 prediction.

And really this is all about if you want to believe in voodoo economics. If tax cuts for the rich really do boost the economy for everyone else then you're willing to believe this wil work, but all the evidence says it doesn't work. Still it's the difference between the Democrats and Republicans. Republicans also think this: